Zalora gets US$100mil, e-commerce gauntlet thrown

• US$100m injection to make online fashion retailer a major presence in South-East Asia
• Offline retailers need to be worried too, not just online competitors

THE news last week that Zalora, which claims to be Asia’s fastest growing online beauty and fashion site, has secured fresh funding of US$100 million has sent shockwaves around the region.
 
Zalora is a creation of Germany’s Rocket Internet, one of Europe’s leading Internet companies, so it is not surprising that the investors who have come in are European-based funds too.
 
The new round is being funded by UK-based fund Summit Partners; Swedish-based investment company Investment AB Kinnevik; Belgian-based investment company Verlinvest; and German-based international retail group Tengelmann Group. Tengelmann also previously pumped in approximately US$26 million.
 
In just a little over a year of operations, the Zalora group of companies, with operations in nine countries, has already delivered its one-millionth order and employs around 1,000 people. It also claims to have achieved annualised revenues in the double-digit-million range in US dollars.
 
Those achievements and the expectations that South-East Asia’s 600 million citizens will develop into eager online shoppers, along with the cash infusion it just received, clearly positions Zalora as the player to watch in the race to dominate the region’s e-commerce market in fashion and beauty.
 
Perhaps “race” is not the right word as the region’s fashion and beauty brick and mortar retailers have been slow to take to the online world, while leading global e-commerce sites, predominantly American, have been content to invite the world to shop with them with goods shipped from the United States.
 
The result is that there has been a huge gap in the market for in-country e-commerce in the fashion and beauty space.
 
As Julian Leitner, the former head of Zalora in Thailand, notes: “In most of the countries Zalora is active in, it has virtually created the market. Also, here in Thailand, there is and was no real competitor – Zalora does pioneering work educating customers to shop online.”
 
What kind of impact will Zalora have on the region’s e-commerce landscape now that it has a further US$100 million to play with?
 
To be sure, the amount raised is stunning. But it also hints at how tough it is to make e-commerce work in the region.
 
Stefan Bruun, who was with Rocket Internet in Europe before joining its e-commerce foray into South-East Asia, says that, “E-commerce in general is a very tough game and many players in the market are struggling to get it right.
 
“So it’s a great sign for its growth that it has been able to raise this kind of money,” he adds.
 
Already the leading e-commerce player in many of the markets it is in, the thought of Zalora beefed up with US$100 million must surely send a chill down its competitors’ spine. And, just like Amazon.com, what’s to stop Zalora from extending into other niches?
 
It actually already has other verticals in e-commerce such as food, office supplies and electronic gadgets. Currently, each sits under its own online brand but it may decide that they can all sit under the Zalora brand – which is the most popular of its online properties in the region.
 
The question existing e-commerce players in the region, such as Rakuten or Malaysia’s Lelong and Superbuy.my, will be asking is whether Zalora’s future growth will come at their expense or through the pie growing enough to accommodate all players.
 
Bruun thinks it can be both, depending on how one looks at it. Now running his own digital marketing agency in Kuala Lumpur, Lion & Lion, he says: “[Zalora] is definitely taking away some of the revenue from traditional retailers, but this comes down to its choice of channels. Very few offline retailers have seized the digital opportunity and hence Zalora has had relatively little competition.”
 
Adrian Oh, who has set up a Malaysian e-commerce group on Facebook, offers a different take – he feels Zalora will help expand the pie by attracting people to shop online for products they can’t get in their local markets.
 
At the same time it will also be growing at the expense of local players but not the online market. “I think it will eat into the market of the offline players by offering the same products cheaper online.”
 
Meanwhile, Bruun sees a rising trend for offline vendors to pursue a stronger online presence, both through e-commerce and to build awareness and traction, “but for most it is a completely new world that they have a hard time navigating,” he observes.
 
But time is not on their side. “If they [retailers] do not get in soon, they will definitely lose market share to companies like Zalora.”
 
Zalora is in seven of the South-East Asian countries, Taiwan and Hong Kong. It has stayed out of Cambodia, Laos and Myanmar – for now.
 
Related Stories:
 
Foreign e-commerce threat for retailers in Malaysia?
 
Lelong CEO sanguine on Rocket Internet entrance
 
Rakuten enters Malaysian e-commerce market in a unique way
 
E-commerce players: The taxman cometh
 
 
For more technology news and the latest updates, follow @dnewsasia on Twitter or Like us on Facebook.